The Financial Services Institute is not impressed. In a letter submitted Thursday, the industry group panned FINRA’s proposal to collect customer trading information as part of a planned compliance system, saying it was “simply not feasible.”
The group highlighed a number of concerns about FINRA’s Comprehensive Automated Risk Data System (CARDS) proposal, including the additional costs, client privacy and the program's overall effectiveness:
“The collection and centralized warehousing of vast quantities of data raises substantial concerns with regard to data security, privacy, and potential liability in the event of a security breach. FSI and its members believe some of these issues may be mitigated with alternative approaches; however, we are concerned the development and implementation of CARDS is simply not feasible while preserving widespread investor access to the services of independent broker-dealers and financial advisors.”
Under the original proposal, FINRA planned to collect client account information from firms, using the data to analyze firms’ for problematic activity, including excessive commissions, price gouging, pump-and-dump schemes and account churning. The proposal also noted that the collected information would be used in broker-dealer exams as well. Despite FINRA’s decision earlier this month to pull back from the original plan and not collect and retain information that could be used to identify a client, like names and account numbers, FSI claims that data security issues still remain in the overall proposal.
While FINRA may not be collecting personally identifiable information now, FSI argues the data will still be compiled at the clearing firms. In addition, if a data security breach does occur within FINRA and investor information is accessed, investors will likely place blame on advisors rather than FINRA, the group says.
At the same time, FSI said FINRA's plan didn't go far enough to ensure it could meet the program's ambitions. For instance, the regulator’s proposal does not include data from direct business, where the client and the advisor deal directly with the product sponsor rather than through a clearing firm. “By not collecting direct business data, FINRA will be excluding a large percentage of the sales practice information necessary for it to have a complete picture of a specific firm or client,” the letter says.
“As proposed, CARDS faces severe challenges that will not only impact the effectiveness of the analysis and collection of data, but will impose serious costs in terms of personnel and information technology infrastructure,” FSI’s general counsel, David T. Bellaire wrote in the group’s comment letter.
Since its unveiling in December, broker-dealers, industry groups and individual advisors have been critical of the proposal, questioning how FINRA would the collected client account data, the security of such information and the costs of creating and maintaining such a system.
Firms have until March 21 to submit comment letters regarding the regulator’s proposed initiative.
